RESIDENTIAL RE REACHES $250M, 25% UP ON AMOUNT MARKETED

Cayman Islands-based Residential Re, which is used by Texas-based insurer USAA to transfer property risk to the capital markets, saw strong demand for its 2011 issue, a four-year deal that followed on from the maturing 2008 catastrophe bond (IIN 24, May 13 2011). Series 2011-1 was marketed at about $200m in size but was upscaled to $250m. It is split into three tranches. Class 1 ($57m) and Class 2 ($33m) are on a per-occurrence basis, while the aggregate basis Class 5 notes ($160m) look to have been the tranche that increased most significantly from its original planned size. S&P has rated the Class 1 and 2 notes at 'B+' and 'B-' respectively. Class 5 is rated 'B+', higher than S&P's preliminary estimate after the agency recognized the full benefit of reinsurance maintained by USAA. Although the deal could be seen as a success in that demand was higher than for the initial marketing size, its initial target was somewhat low, considering the fact that Residential Re 2008 was $350m in size. With the US hurricane season starting today, the Residential Re closure is likely to be the last US-related non-life cat bond deal until either August or September. At $1.66bn, sales are still about 25% below the level achieved for similar issues in the same period in 2008 – which many of the 2011 issues are replacing. It is also about 25% below similar deals last year in the same period, including the 14th Residential Re transaction, which reached $405m in 2010.